SPEAKER 1: This is a production of Cornell University.
SPEAKER 2: Amartya and Emma, welcome to Cornell.
[APPLAUSE]
AMARTYA SEN: Well, first of all, let me say how very happy I am to be back at Cornell again. It is not only that I have great loyalty to Cornell University as a former member of its academic staff, thanks to the wonderful association I had for many years as Andrew D. White Professor-at-Large, through the '80s. But also, I have so many friends and associates here that there is always something of a homecoming in my visits to Cornell. They are all so invariably enjoyable as well as energizing.
One result of having strategically placed good friends here, of course, is that you get eulogized before you start. I think that's the way. Let me give you Karl said there's something he claimed he learned from me. I doubt that.
But I think what I would like to suggest is that that's a very important thing-- to plant some friends before you come somewhere. And ask them to introduce you. And then you'll start in a kind of highly elevated plateau-- from which, of course, it's quite easy to have a precipitous fall, which might yet happen.
I do feel very privileged, also, on this occasion, by having the chance of giving this lecture named after professor George Staller an economist of great distinction whom I had the opportunity of knowing over the decades when I first came here as the Andrew D. White-- so I thank you, George, for coming through that. And Dorothy, too. And I also thank Russell and Diana for making all this possible. Thank you very much.
And I'd like to thank the Dean-- Dean [INAUDIBLE] and Karl Shell and Kaushik Basu for their very kind remarks in welcoming me. And thank you all for coming.
The theme of my talk is, as you know, Capitalism and Confusion. This, I should explain, is not a program of making you confused about capitalism. I'm sure generating confusion would be a hard thing to achieve here, given the rigors of Cornell academic discipline.
My point, rather, is that there is a lot of confusion that already exists about the nature and functioning of capitalism which affects our thinking about how to respond to the present crisis of capitalism. This is a case for addressing the abundance of confusion that we do see today.
Not long ago, in the '80s and the '90s, profit-making capitalism seemed triumphant. Even though American and European economies had many different problems in the first, including the experience of the Great Depression in the 1930s, the market economy had been exceptionally dynamic in the long haul of half a century after the end of the Second World War, generating an unprecedented expansion of the global economy. Businesses boomed in all capitalist economies in the West as well as in the new centers in the East.
All this has been seen as grounds enough for self-praise of capitalism, reminding us-- at least, it reminded me-- of that-- it increasingly sounded like that heroic verse which I remember reading as a child. Day by day, in every way, I'm getting better and better.
While these successes were ringing in, the prominent rivals of capitalism, including the Soviet Union and other communist states, went into a deep decline and finally imploded. In general, the enemies of the capitalist ideology were humbled. State-supported social security-- which developed in the Western countries largely in the early years after the Second World War-- has increasingly been seen as wasteful. And the welfare state has also been described in recent decades as a huge euphemism for profligacy. As a century and a millennium ended, only a few years ago, the effectiveness of the market economy and the creativity of the profit motive received glittering acknowledgement and celebration.
Those boon days have come to a halt. Last year, 2008, was a year of economic crisis. There was first the food crisis, particularly threatening to the hundreds of millions of people who were already a little hungry, or food insecure, across the world, especially in Africa and parts of Asia. Along with that came an oil crisis, threatening all oil-importing country. And the price of gas at pumps seemed to become the main topic of social conversation last summer, thereby adding insult to injury.
By the fall, a huge global economic downturn came in rather suddenly, led by a US recession. And this retrograde movement has been gathering momentum at a frightening rate over the last few months. Appeals have been made as a result to the old enemy, the state.
And government-financed rescue efforts to shore up capitalism have been large, indeed gigantic. Not long ago, a billion dollars seemed like a huge sum. But thanks to the bailouts, one after another, it sounds right now like a pittance.
The patient, however, seems quite resistant to recovery. If the fever in the stock market is gone one day, it seems to be back the day after. And meanwhile, people lose employment and wages, get evicted out of their homes, and forgo medical care and essential purchases because of lack of means.
The discomfiture of capitalism and its evident failure to run things satisfactorily have led to repeated questioning of how capitalism should be changed. It's often asked, what reform does capitalism need? How do we get a quote unquote "new capitalism," more sturdy and robust and efficient, and also more caring and humane?
The search for a new capitalism is one line of thought. And I shall come back to it soon again. But I'll note first that this is not the only line of thought we encounter today in facing the economic crisis.
A second line of reaction disputes the need for taking the present time's crisis so seriously. Things are not, some have argued, as bad as they look. This is certainly, it's also argued, no long-run problem.
It's a bit of a passing glitch. And all we need to do is to grin and sit tight. This line of reaction can be summarized with the help of a song from a decade or two ago, very popular then, called "Don't Worry Be Happy."
We got a lot of the intellectual version of that smugness last year, at least in the United States, when various authorities on economic wisdom told us that the fundamentals of the economy were strong. I'm not going to spend much time on this line of obduracy. I believe the captain of the Titanic told something similar to his passengers as his huge ship approached a silly little obstacle.
I do, of course, accept that the crisis has been made much worse by bad government, including by the last US administration, and by bad behavior of some individuals-- what John McCain described doing the presidential campaign as the greed of Wall Street. But it would be hard to detect nothing more than passing follies of a few people in the biggest economic meltdown that most people in the world have experienced in their lives. And indeed, if a system is so vulnerable to greed-- a condition of human mind, greed, that is not exactly new-- then how robust can we take the system to be?
A third proposed way of addressing the issue, which appeals to some people, is to be much more radical and ask, isn't it time that we gave up capitalism altogether and add something really different, like a good, old-fashioned socialism? How do we address that proposal?
I must begin by mentioning that in my experience it is not altogether easy in America to talk about something called socialism, since the term seems to arouse such instant fear, and even instinctive revulsion. Socialism has become almost a term of abuse on this side of the Atlantic in a way that is altogether remote from the use of the term in Europe or Asia.
To greet others here by describing oneself as a socialist is almost like greeting them by saying, good morning friend. Let me introduce myself. I'm a great champion of burglary.
If you want to be pally, I would suggest you look for some other way of introducing yourselves. However, I must emphasize that this is not the main problem in looking towards socialism for a solution to our present problems. The main difficulty is in ascertaining what it is that we might mean by socialism.
In European and Asian usage, the term socialism is not really distinguished from wanting a mixture of government institutions and markets. And it's this reinterpretation of socialism that allowed Francois Mitterand yesterday, and allows Gordon Brown today, to be seen as a socialist, leading the Socialist Party in France or the Labour Party in Britain. Given that definition, proposing socialism as a solution is not so much an answer to the question asked as it is a question on its own. What balance of institutions, linked with markets, governments, corporations, or NGOs should be rightly chosen?
To be sure, there was not long ago a fairly well-defined way of characterizing socialism, namely as an economic system where all means of production are state-owned. That was the sense in which, say, the Soviet Union tried to be a socialist economy. It's also true that the Soviet Union did have some major successes-- for example, in sending all the children to school from the European end to the far-stretched provinces in what had been very backward parts of Asia-- and in other things, too, like launching the Sputnik and stealing a march on the United States.
But the fact is that the Soviet economy, after some early burst of energy, functioned almost as badly as its politics. And it can hardly serve as a model for any country to emulate today. Professor Staller can tell us a great deal more about it than I can. But I must confess I do think that the proposed socialism in the Soviet sense as a solution to the crisis of capitalism would be a real cry of despair.
We can still note the good things that a socialist system can achieve. And indeed, parts of that wisdom have been used fairly widely in Europe and Asia. But for a solution to the present crisis, we can hardly suggest adopting a Soviet-style socialist system.
Where, then, do we look for a solution to our problems? So what about a new and reformed capitalism, the call for which, as I mentioned earlier, is often heard across the world today? And the rhetoric is particularly intense in Europe.
But what exactly is capitalism? If the present system is reformed, how would we know whether we have a new capitalism or something quite different? Capitalism is not much more clearly defined than is socialism.
The standard definition, well reflected in textbooks, seems to take reliance on markets for economic transactions as a necessary qualification for an economy to be seen as capitalist. And in a similar way, dependence on the profit motive and on individual entitlement based on private ownership are seen as archetypal features of capitalism. So there we do have a fairly clear-cut definition.
However, if these are really necessary requirements of capitalism, are the economic systems we currently have and describe as capitalist-- for example, in Europe and America-- genuinely capitalist? There's a bit of confusion here in defining capitalism in one way and illustrating its manifestation in a completely different way.
All affluent countries in the world-- those in Europe as well as the USA, Canada, Australia, Japan, Singapore, South Korea, Taiwan, and many others-- have depended for quite some time now on transactions that occur largely outside the market, among other things such as unemployment benefits, public pensions, and other features of social security, and also public tuition of school education, health care, and a variety of other services. The creditable performance of the alleged capitalist systems in the days when things seemed to move steadily forward drew on a combination of institutions that went much beyond relying only on profit-maximizing market economy.
But how did the original theorists of capitalism define the system when the system capitalism was born? The greatest theory of capitalism is meant to be Adam Smith. And certainly, Smith did explain with remarkable insight how a market economy operates, and how it achieves what it does achieve. The benefits of division of labor, of specialization, of the economy of large scale, all came into his definitive analysis of the efficiency of the market economy.
But did Smith praise a system that relies only on the market system and nothing else? It would be hard to find anything in Smith's vast writing that would permit us to take that view. Smith did not take the pure market mechanism to be a free-standing performer of excellence. Nor did he take the profit motive to be all that is needed.
As it happens, Smith never used the term capitalism at all in any of his writing, at least so far as I have been able to determine by going through all his work. At the moment I'm writing the forward to be 250th anniversary edition of Theory of Moral Sentiments-- not forward, introduction-- a longish introduction. Moral Sentiments was published in 1759, exactly 250-- a quarter of a millennium ago. So it gave me a chance to go through it. And certainly I don't find any word like that anywhere.
And it would also be hard to carve out from his works-- and that's the more important point-- any theory of the sufficiency of the market economy, as opposed to the necessity of the market economy, or the adequacy of profit seeking as a motive, as opposed to its productivity in the areas where it does work.
Despite Smith's frequent discussion of the importance of motivation other than self-interest, he has somehow developed a reputation of being a champion of the unique pursuit of self-interest by all human beings-- even what John McCain might recognize as the greed of the Wall Street. For example, in two well-known and forcefully argued papers the famous Chicago economist George Stigler has presented his quote unquote "self-interest theory," including the belief that, I quote, "self-interest dominates the majority of men," unquote, on being on quote unquote "Smithian lines." Stigler did not get this right, since Smith definitely did not take that view, and argued for the importance of many motivations including generosity and public spirit as being extremely important values and useful ones.
And yet Stigler was not be idiosyncratic in that diagnosis, since it has been such a common diagnosis over the last 100 years or so. Being the champion of profit motive is indeed the standard view of Adam Smith that has been powerfully promoted by many writers who constantly invoke Smith to support their defense of profit-centered capitalism.
Stephen Leacock, who is quite remarkable, being both an economist and a writer of limerick, explained this dynamic in his cheerful poem-- by the way, I was reminded of one of Stephen Leacock's stories when Karl Shell was describing Truman Bewley's having to study economics because he wanted to do history, and then having to start math because he wanted to do economics. And the story in his case has a happy ending. In Leacock's story, it doesn't.
This is a man who wanted to know English better. And he was told that for that he had to do Latin. So then he went to Latin. And then he was told that he couldn't really do Latin very well without also going into the protolanguage from which Greek and Latin both developed.
Well, he studied that, in whatever documents did exist. And then he was told he couldn't study it very well without knowing Sanskrit. So he went into Sanskrit. And then somebody told him that Sanskrit cannot be fully understood without knowing the old, ancient Iranian.
And so he looked for it. And then he was told it was extinct. And there is not a single book on that. And the tragedy is that he then said that there's no way I can learn better English now.
Now this is one of Leacock's poems about Adam Smith, by the way. It goes like this. "Adam, Adam, Adam Smith, listen what I charge you with! Didn't you say in the class one day that selfishness was bound to pay? Of all doctrines that was the pith, wasn't it, wasn't it, wasn't it, Smith?"
Now this is quite a standard view of Shakespeare-- of Smith.
[LAUGHTER]
I'm afraid Shakespeare is coming. I warn you. The standard view of Smith because he had some-- you know, he may write about generosity, public spirit-- the Theory of Moral Sentiments writing introduction is full of it.
But unfortunately, this is the view. Now, to paraphrase Shakespeare, while some men are born small, some achieve smallness. Adam Smith has had much smallness thrust upon him.
A great many economists were and still are evidently quite enchanted by something that has come to be called rational choice theory, in which rationality is identified with intelligently pursuing self-interest. Further, following that fashion in modern economics, a whole generation of rational choice political analysts and experts in so-called law and economics have been carefully practicing the same narrow art. And they've been citing Adam Smith as alleged support for their cramped and simplistic theory of human rationality.
By the way, it's lost its position quite a bit in economics, thanks to the emergence of experimental economics. And economists take experiments seriously. I've often grumbled that many of us were arguing about the limitation of that model on Smithian grounds-- namely, just reasoning. But now that they've shown that card players in little experiments don't try to pursue their interests even when they're told to do so, because their generosity tends to break in. There's great doubt about it in economics. But in politics and law and economics, it still weighs strong.
One reason for the interpretational confounding is a tendency to confuse the question of defining rationality on the one hand and discussing why people seek exchange in a market economy-- a much narrower question, which Smith did address. Smith famously discussed that to explain the motivation for economic exchange in the market, we do not have to invoke any objective other than the pursuit of self-interest.
In his most famous and widely quoted passage from The Wealth of Nations, Smith wrote, I quote, "it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own interest. We address ourselves not to their humanity, but to their self-love," unquote. The butcher and the brewer and the baker want to get our money in exchange for their meat, the beer, the bread they make.
And we the consumer want their meat, beer, and bread, and are ready to pay for them with our money. The exchange benefits us all. And we do not have to be raving altruists to seek such exchange.
This is a fine point about motivation for trade. But it is not a claim about the adequacy of self-seeking for economic success in general. Nor is it a claim that people follow only self-interest in their behavior in general.
Indeed, Smith explicitly repudiated both these cases. Unfortunately, in some schools of economics the reading of Smith does not seem to go much beyond those few lines on the baker, the brewer, and the butcher, even though that discussion is addressed only to one very specific issue-- namely, exchange-- rather than distribution and production-- and in particular the motivation for exchange, rather than what makes normal exchange sustainable, such as trust and confidence in each other. In the rest of Smith's writings, there are extensive discussions of the role of other motivations that influence human actions and behavior.
For example Smith argues, in a way that's quite relevant to the crisis today, when the people of any particular country-- I'm quoting from Smith. "When the people of any particular country have such confidence in the fortune, probity, and prudence of a particular banker as to believe he is always ready to pay upon demand such of his promissory notes as are likely to be at any time presented to him, those notes come to have the same currency as gold and silver money, from the confidence that such money can be had at any time for them," unquote.
Smith discussed why such confidence did not always exist. Even though the champions of the baker, brewer, butcher reading of Smith enshrined in many economic books may be at a loss about how to understand the present economic crisis-- since people still have excellent reason to seek more trade, even the butcher, the baker, and the brewer, even today, only far less opportunity-- the devastating consequence of mistrust and mutual confidence would not have puzzled Smith at all.
Smith talked about the important role of broader values for [INAUDIBLE] behavior, as well as of institutions, even in The Wealth of Nations. But it is in his first book, The Theory of Moral Sentiments, which as I mentioned was published exactly 250 years ago, that he extensively investigated the powerful role of nonprofit values. While prudence-- I quote, "prudence is of all virtues that which is most helpful to the individual," unquote, Adam smith went on to argue that, I quote again, "humanity, justice, generosity, and public spirit are the qualities most useful to others," unquote.
Not only did Smith emphasize the importance of values like trust and confidence for good operation of an economy, he also discussed in some detail how an economy may face serious problems because of the excessive search for profits by irresponsible risk-takers whom he called prodigals and projectors. Not only are the terms quite nicely descriptive of the present cowboys of the financial sector, whose single-minded pursuit of rapid profits has played a big role in the genesis of the present economic crisis, but Smith's general analysis on prodigals and projectors is deeply relevant today in understanding what has just happened in the financial world.
The implicit faith in the wisdom of the market economy, which is largely responsible for the removal of the established regulations in the United States-- not only doing the Bush administration but also during the Clinton administration going back to Reagan's times-- tended to assume away the activities of prodigals and projectors in a way that would have shocked the person who is so often taken to be the theorist of pure capitalist economy.
For historically interest, it's important to note-- and it's not been much commented on. I haven't seen any discussion on it in this context. Smith had to face considerable resistance to this criticism of the market economy doing his own lifetime. For example, the great political philosopher Jeremy Bentham wrote to Smith a long letter questioning this part of his analysis, and disputing in particular Smith's remarks about the so-called prodigals and projectors.
It's quite interesting-- here is the political theorist lecturing not only the leading economist of his time on economics, but also the leading economist in history. And also, here is someone lecturing Smith on how the market functions. And there are some lovely sentences in Bentham's writing where he explains to Smith how the market economy operates.
I might say that he also went to see Smith. And he came away with the impression that-- Smith was a very polite man; he went all the way to [INAUDIBLE]-- that he had persuaded Smith. And he, I think, confessed to a friend that he expects that in the next edition of The Wealth of Nations, this particular passage would be revised. I might say, not a single word was revised in the next edition.
Among Jeremy Bentham's arguments was his claim that those whom Smith called projectors were also the innovators and pioneers of economic progress. As it happened, Bentham did not manage to persuade Smith, as I just mentioned. Smith knew the distinction between innovating and projecting well enough.
And now, more than two centuries later, the distinction remains sadly relevant as we try to understand the nature and causation of the crisis that has hit the world of finance, including the-- I won't have time to discuss that. The prosperity of the financial sector has been taken by so many people as an indication of its high level of productivity, completely overlooking the kind of short-run benefit that you can get from projection and prodigality, which Smith talked about.
Now if trust has broken down in the markets today, there are in fact good reasons for mistrust and the breakdown of assurance in the world today. The obligations and responsibilities associated with transactions have in recent years become much harder to trace, thanks to the rapid development of secondary markets involving derivatives and other financial instruments. This has occurred at a time, a particularly important time, when plentiful availability of credit-- partly driven by huge, indeed gigantic, trade surpluses of some economies, most prominently China-- has magnified the scale and opportunity of brash operations.
A sometime lender who misleads a borrower into taking unwise risks can now pass on the financial instrument to other parties remote from the original transaction. The need for supervision and regulation has become much stronger over the recent years. And yet the supervisory role of the government in the United States in particular has been, over the period, sharply curtailed, fed by an increasing belief in the self-regulatory nature of the market economy.
Precisely as the need for state surveillance has grown, the provision of the needed supervision has shrunk. There was a crisis waiting to happen. And we should not have been so surprised, but for our confusion about the nature and working of capitalism, when the crisis did actually occur.
Smith drew our attention not only to the regulatory role of the state, maybe thought to be a negative role, but also to the importance of the state's positive action in support of the well-being and capabilities of people. The state's role cannot be, his argument indicated, confined only to restraining the market, but must include a supporting function in safeguarding and promoting human life and freedom. Despite all Smith did to explicate the contribution of functioning markets, he also was deeply concerned about the incident of poverty, illiteracy, and relative deprivation that might remain despite the well-functioning market economy.
Indeed, he wrote powerfully about each of these problems, and quite extensively-- in The Wealth of Nations, as well, not just in Moral Sentiments. He wanted institutional diversity and motivational variety, not monolithic markets and singular dominance of the profit motive. Smith was not only a defender of the role of the state in doing things that the market may fail to do-- such as universal education and poverty relief.
He also wanted greater freedom for the state-supported indigent than the Poor Laws of his day allowed. If you took support from the state, you had many restrictions-- not being able to travel and so on-- which Smith thought was extremely unfair and quite counterproductive. He argued in general for institutional choice to fit the problems that arise, rather than anchoring institutions to some fixed formula, such as leaving things to the market, to which we tend to give more credit in our rather confused way than it deserves.
So what was Smith arguing for? What kind of a system-- capitalism, socialism, or what? I would argue that Smith was profoundly uninterested in nomenclature and deeply interested in content.
What he addressed was the question, what kind of an economy do we have reason to seek? This is a pragmatic approach, inquiring into the balance of institutions, motivations, and social arrangements that would serve us best in our specific circumstances. He was uninvolved in worrying about insignia-- what are we going to call it when we have it identified?
The important thing is to get the institutions, the behavior, and the social conventions right. And both his books are devoted to it, and to some extent his posthumously published book Lectures on Jurisprudence is also.
This can indeed be called the pragmatic line. And it is. But it's worth reminding ourselves, since pragmatism is used in different ways, that pragmatism too demands a theory.
Smith was a theorist of a very rigorous kind. But his was a theory of pragmatic, practical reason, not one of suitable nomenclature. If we accept Smith's reasoning, we have to reject all the three alternatives outlined earlier.
We cannot, first of all, be just happy and smug with whichever way the market takes us, even as the world collapses and human beings are hurled into misery. Nor, secondly, do we have reason to jump into the failed system of state-run socialism, overlooking the good things that the market-- and only markets-- can do, even as it messes up things in other fields. Thirdly, there is use for institutions of different kinds supplementing each other. And there is no particular case for trying to seek a plural system under the flattering banner of a reformed new capitalism.
We need a reasoned choice of institutions and practices. And we can try to do the best we can. It does not matter much what we call such a system.
However, in our confused way, if we both see capitalism as a freestanding system that generates success, and also capitalism as just exclusive reliance on the market economy run by the profit motive, then it would not be surprising that non-market institutions would look like impediments that could be gainfully dropped without penalty. If we do not want to return to the situation of vulnerability and instability experienced over the recent past, and to the inequity and unfairness of the longer history of what's been called capitalism, we have to understand that we do need a genuinely plural system of diverse institutions chosen with their functions in mind.
A particular issue to take up in this context is the acknowledgement of the need for the state to provide health care, and to promote public health in general, as a part of its diverse obligation. The issue of health care is particularly important today in the United States, since it's the only rich country in the world that does not have some kind of a universal health care run by the state.
That a market economy can be particularly bad in delivering public goods such as education and health care has been discussed by some of the great economists of our time, including Paul Samuelson and Kenneth Arrow. Samuelson pioneered the analysis of so-called public goods, in which one person's consumption of the good is compatible with that of another, in contrast with what are called private goods, like a toothbrush, in which your toothbrush is definitely not mine.
Good epidemiology, like great security, is consumed by all. And even the interdependence of health conditions-- particularly through infectious conditions, but also through general epidemiological planning-- makes the public good model deeply relevant to health care. Samuelson's demonstration that the market economy gets confused and confounded about the allocation of resources for public good applies well enough to public health.
Kenneth Arrow, on the other hand, discussed the fact that in medical services, there are huge problems connected with information. One problem is that asymmetry of information in the market for health care and for health insurance. A person often has very little knowledge of the medical characteristics of illness and the availability of effective remedies, and therefore cannot choose the treatment that would be best for him or her in the way that the person could choose, say, the best shirt for personal use.
This kind of asymmetry has been beautifully described by George Akerlof as a market for lemons. The seller of a chronically faulty car-- lemons in that sense-- knows a lot more about it than does the buyer.
By the way, the market for lemons was first given as a seminar in my seminar in Delhi School of Economics. And I had to explain. Quite a lot of my colleagues took lemon to be comparable with lime. There was a huge problem involved in that, and explained.
Because of this asymmetry of information between the patient and the doctor, the buyer and the seller, the market for private health care can hardly function like the market for shirts, with all the efficiency that a market economy can produce. This is, however, only one of many information problems of the market economy. When Akerlof was jointly honored by the Nobel Foundation along with Joe Stiglitz and Mike Spence their many contributions on the reach and limit of the informational side of markets received well-justified attention.
One of the problems discussed by Kenneth Arrow himself comes from the fact that the private insurer of health has good, profit-based incentive to deny health care to anyone with more prone to illness. And this makes private health insurance deeply problematic for those who need it most.
The combined effect of these works, these published economic contributions, and those of many others over the last few decades, is to make us understand that some system of health delivery other than relying on the market-based allocation with private insurance is badly needed for fairness as well as efficiency of public health. Not surprisingly, despite the US being perhaps the richest country in the world, and despite that it spends much more-- indeed, immensely more-- than any other country on health expenditure per head, the achievements of the United States are worse than those of many, much poorer countries.
Here again, confusion can have a very negative effect. This is particularly important in this case, since part of the problem with fixing health care in the USA is one of public attitudes and understanding. There are hugely distorted perceptions of what happens under a national health service provided by the state. For example, it's common to assume that no one has any choice of doctors in a European national health service, which is of course not at all the case.
Why the resilience of this confusion? It's difficult to see. Part of the reason is that a wrong belief, once established, is very hard to dislodge.
"Socialized medicine," quote unquote, like socialism itself, is almost a term of abuse in America, in contrast with every country in Europe and many countries across the world. Is this because-- it's a frivolous suggestion, by the way. Is this because American mothers made their children eat more spinach by threatening them with socialized medicine?
While I must protest against that unfounded allegation and stand up for the American mother, I must also ask for more public discussion on how social delivery of medical care actually works in Europe and in many countries in other parts of the world. There are seriously distorted fears here that need a deep reexamination in public discussion. Confusion can indeed be very bad for human health.
While asserting this, I also argued in a recent article in the New York Review-- while asserting all of what I just said about health care-- that there is a further need on grounds of pragmatism, to have a better understanding of the options that exist. In the context of the US discussion of health care through the state, there has been an over-concentration on the Canadian system that makes it very hard to have private health care.
Whereas in Europe, the National Health Service provides care for all, covering up to everybody. But it also allows private practice and private health insurance in addition to state coverage, if anyone wants to have it and can afford it. Even though it's easy to understand the justified criticism of unequal health care that many people see as a reason for not allowing private practice in medicine or private insurance of health as an additional facility, it seems they ought to allow rich people to spend their money freely without any restriction-- on yachts or villas, but not on things that matter most to them, namely MRIs and CT scans.
Rich Canadians today can now come to the USA for special medical care. But if America became like Canada in this respect, then there would not be an obvious place for the rich to go for extra medical care. So their extra money would have to be spent on special yachts instead.
If I take a clue from Adam Smith's argument for pragmatism and for a diversity of institutions, along with making room for a variety of motivations, there are tactical moves we can make which would make a huge difference to the world in which we live. Before I end this talk, I must say a few words on the issue of the environment, since that is another area in which the market economy has some built-in difficulties. The effects of our actions extend well beyond our own lives, and may well stretch also beyond the present generation.
In our own time, we can warm up the world, pollute the waters, poison the air, in a way that may leave a lasting and accumulating impact on the future generations. The signaling of profit would not automatically reflect these dire consequences of our actions, which economists often call, quote unquote, "external effects." We have to go beyond the market and the profit motive. And it can be asked whether we should go towards an institutional remedy or a motivational remedy in the pragmatic system.
The answer would seem to be both. Indeed, the institutional route and the valuational route offer distinct but combinable ways of countering what the markets overlook. We can seek a solution either through the enlarging of the concerns and values that are reflected in our choices and actions so that we take note of the impact of our actions on the environment and on others, and through broadening the institutional framework of economic decision so that the prices are adjusted through taxes, subsidies, and other lines of governmental intervention.
The former focuses on the motivations and norms that inspire us, while the latter concentrates on the institutions that shape our assessment of gains and losses from our actual behavior. If people were to care spontaneously and individually about the effects of their actions on the environment, and through that about the effects on others, then the need for institutional response would be to that extent reduced. On the other hand, if institutions are accordingly reshaped-- for example through taxes and subsidies and through extending appropriate property rights-- so that individual profits thus adjusted would better reflect the effects on the environment, and through that the effects on others, then the necessity for value formation would be to that extent reduced.
We can get help from both-- from value formation that makes us more sensitive to the environmental losses in our choices and acts, and from changed institutional arrangements whereby the adverse effects of these activities are translated into private costs that the individuals involved are made to bear. There's a great need for pragmatism in dealing with these problems. Institutional reform would undoubtedly have a role in making the environmental issues receive more attention and response.
The valuational route, too, can be very useful, demanding that we base our behavior taking note of our duties as responsible citizens of the world. Each has an important but limited reach. And the two can work together to supplement each other.
What is centrally important is to try to avoid the confusion that make us shun pragmatic solutions based on open-minded analysis of the actual options and their actual effects. The alternative to dogmatic adherence to some pure form of capitalism, on the basis of some belief in its imagined magnificence, is not socialism supported by an equally credulous belief in its imagined efficiency. But it is careful and informed reasoning to choose a combination of institutions and motivations and conventions.
Reason has been the main source of strength of human beings since we evolved as a species. Our economic problems demand a larger role of the same source of human strength. The inequities and the instabilities of the economic world can be best tackled not by faith in some predetermined rigid system or other, but by making our choices corresponding to informed, practical reasoning. This is indeed the discipline that the pragmatic solution demands. Thank you.
[APPLAUSE]
KAUSHIK BASU: There's a mic here. And there's another one there. Russell, OK.
So it's open for some questions. We don't have too much time, but a little bit. And yeah. You can-- the best way may be for you to actually show up over to one of these. And I'll take the questions in order. Or if you're planted somewhere where you can't extricate yourself, just raise your hand and I will try to spot you. Yes. Let's start. Yeah. If you'll just speak loudly.
SPEAKER 4: One of the last things that was touched on was environmental issues.
KAUSHIK BASU: Can you tell us who you are? Your name, and--
SPEAKER 4: I'm Robert Potter. I'm from SUNY Geneseo. One of the last things that was touched on was environmental issues and how when you form values and to also include-- well, it wasn't [INAUDIBLE]. It was some sort of environmental pact on pollution. And I guess what my question is--
Thank you. Well, my question is, how do we deal with a race to the bottom? There's a big problem now where if we include the pollution tax, the polluters are just going to go somewhere else with their business where they don't have the values or the economic deterrents to pollution.
AMARTYA SEN: Is this working?
AUDIENCE: Not yet.
AMARTYA SEN: Not yet. I switched it on. I've done what I could. There's a green light here.
KAUSHIK BASU: It is working, I think, but not loudly enough.
AMARTYA SEN: Has this got buried? Is this any better? OK. I'll try that. I didn't for many years know what a tie is used for. It seemed like such a useless apparel.
[LAUGHTER]
But I know that it is for a microphone. Hundreds of years, people were waiting for this evolution to take place.
[LAUGHTER]
OK. Is that OK? More or less? Yeah. OK. I could tie that other thing, too, when it misbehaves.
Well, I think that when you said tax-- that tax is only one of them. I would say institutional reform-- the various kinds of institutional reform that you need. And we can discuss them. But the tax is certainly of one of them, yes.
But this idea that it's migrating elsewhere depends on the idea that policies on the environment can be done by a country on its own. And that, I think, is ridiculous. Like just as it's ridiculous in defense. It's also ridiculous about the environment.
You need multilateralism for all of them. And in order for it to work, you could have a variety of systems. But one of them is a general agreement on such statutes.
Now then if everyone is agreed but there is somebody who does not want to, then you could deal with it. Because if it's multilateral, everybody has agreed. Then you could put punitive results on that country that doesn't follow it. There's all kinds of ways-- and you can work out if you're interested, as an economist, in the game forms of that. But it certainly can be done with considerable ease, provided you take a multilateral one.
I think the big change-- it wasn't the talk on the present political challenges in the United States, in particular. I think one big thing is the need for US embracing the demands of multilateralism. And it doesn't help that the Kyoto agreement did not get ratified by the Americans.
And so, you know, now, naturally, if you unilaterally put taxes, then you get into a huge problem. But you have to do it on the basis of a global understanding. The Kyoto was not adequately covered-- it's coverage was not adequately large. And the membership of the countries was limited, too.
But what you need is to go in this direction. And there's no time better than the present moment to go in that direction. So you're right to worry about it. But it's not a problem without a solution.
KAUSHIK BASU: Yes, OK. John, can you-- yeah. There's a-- well, there's a-- it's coming up. Why don't you introduce yourself and then ask?
SPEAKER 5: Sure. My name's Anumeha. I'm a student of public policy.
AMARTYA SEN: I didn't get the name.
SPEAKER 5: Anumeha. A lot of things that you discussed were in the context of the state and its people. How would you discuss some of the same issues given the context that a lot of states right now are much smaller than other commercial entities such as corporations? And secondly, a lot of decisions that states may take right now to protect their people in a globalized world can affect people in other countries in an adverse manner.
AMARTYA SEN: Yeah. I think these are good questions. I think being small in itself is not necessarily a limitation. A lot of countries have done very well thanks to being small, including Singapore and Hong Kong in its time, and so on.
But you're right that there are a lot of countries that are also poor. And they were concerned about these issues. So that if you think of this in terms of a global being, you have to think about global justice at many different levels.
I shouldn't try to sell my book. But there is a book of mine which is coming out called The Idea of Justice, which is really a book of philosophy, really. It's almost only-- well, it's more of a pure philosophy, I think, than I've done for some time.
But it also discusses why the idea of a justice without global justice is unviable in the world. It's always been unviable. It's particularly unviable now, for some of the reasons that you are concerned with.
So I think you have to, when you have to think about this-- and this relates to the question that Robert asked which led me to talk about the multilateralism. I think you need multilateralism in dealing with these issues as well. And in that line, we have to think about it.
Now you're not going to get to the perfect solution straight away. But it's a question of whether you can do a better solution. One of the main arguments of the book is that at the time of the European Enlightenment, there were two basic trends of thought.
One was aligned with-- took towards social contract, Hobbes and Locke and Rousseau and Kant. It's where you are asking the question about an ideal society, and particularly an ideal set of institutions-- a perfectly just set of institutions. [INAUDIBLE] theory of justice is almost entirely [INAUDIBLE] to perfectly just institutions.
And there was another line of reasoning-- Adam Smith, whom I mentioned, Marquis de Condorcet, whom Karl Shell mentioned, and others-- including Mary Wollstonecraft, the pioneering feminist writer. She's not read as much as she should be. Because she's profoundly important, and very important in my book, too. And others, including John Stuart Mill and Karl Marx-- they were concerned not with, what is an ideal society, but what would make the society change and make it better?
They were concerned with such issues as the abolishment of slavery, removal of the lack of educational facilities for girls. Abolition of slavery worried Condorcet, worried Smith. Educational facilities for girls particularly worried Condorcet. Removal of unproductive state interference in trade particularly worried Smith.
There are a number of prominent issues. And there are similarly a number of prominent issues today. And it's a pity that the theories of justice-- pretty much all of them, now, whether it's Rawls or Nozick or Dworkin or [INAUDIBLE] or Nagel have all tended to be what I would call transcendental, institutionalist ones. What's the ideal society?
What you have to seek is what makes things more just, rather than the just society. And it's in that context that you have to put that situation into. And you won't get to a just society. But you could improve the present situation a lot more than you have at the moment.
So the kind of question that you are asking, the kind of questions that engage Robert, happens to be very important in providing a theory of comparative justice. And that's actually quite important. And the thesis I was quoting is that a comparative theory of justice today requires comparative global justice in a way you cannot avoid. And by the way, it's Smith, particularly in The Theory of Moral Sentiments, who makes that point dramatically and very powerfully.
KAUSHIK BASU: OK. I'm afraid-- why don't you come up? And in the meantime, if you decide to speak loud-- OK. Yes. Go ahead. OK. Why don't you give it to him, and I'll keep you waiting for just a moment.
SPEAKER 6: Thank you, Professor. My name is [INAUDIBLE]. I'm from Vietnam. And I'm very interested in one of the key issues that you said to us during the speech-- that is, the contrast between capitalism and socialism.
And everybody here knows that exactly 20 years ago, the whole world witnessed the collapse of the Berlin Wall. And one year later, we witnessed the collapse of Soviet Union. And the whole world thought that the communism and socialism was dying.
And then 20 years later, the whole world witnessed the collapse of the fundamentals of capitalism-- that is, the banking sector and the financial sector. And then you introduce in your speech that we cannot resort to socialism and we try to reform capitalism. But my question is, should there be a mixture of both socialism and capitalism?
Because at the beginning of a new administration, all the presidents of the United States always say that they try to reform capitalism, to reform Washington, DC. And then at the end of the administration, we see that there's something wrong, there's something failing, in their policy. So what exactly is your idea that we should do to avoid the society of so many unavoidable failures like this? Thank you.
AMARTYA SEN: I think the question you're asking is immensely important. But what I would have to persuade you to is that you should not think in terms of what mixture of capitalism and socialism. Because that's already going into insignia territory. I think what you should look for is what combination of institutions you want.
So you are not driven by wanting a mixture of capitalism and socialism. You're driven by having the right combination of institutions, motivations, and conventions. Now once that's done, then you might say, well, this is the way it's a mixture of capitalism and socialism.
And it will be. But that did not work for you, algorithmically, to get it there. So that's the way to think about it, I think.
But it addresses the same concern that you have. Each system has its defects. And how do we cure?
They have defects because the institutions have limited reach. But they have useful reach. And so the question-- and I think it's a Smithian question, and I, in fact, suggested in the New York Review article. It's that if we look for the institution-- what institutional mixture that we want today-- what we try to do is exactly the programs that Adam Smith outlined in 1776.
Namely, what combination of institutions and motivations would make, at this moment, things improve more than we can otherwise achieve? And I think that's the right question. But it will end up being a mixture of capitalism and socialism.
But don't go to there in asking the question in that form. Because then you get trapped into, this is capitalism, this is socialism. Forget that. Just ignore the insignia as much as possible.
KAUSHIK BASU: Thank you. I've counted nine hands. But we are going to allow just two more questions, I'm afraid. We're very short of time, so please--
MICHAEL LATHAM: My name is Michael Latham. I'm a professor of international nutrition and a medical doctor. I'm not an economist. I would like to ask you to comment on the situation of your country, India, where it's the largest capitalist country in the world. It's the largest democracy in the world. It's doing quite well economically.
But you have a greater percentage of malnourished children than the poorest countries in Africa, and more women with anemia. You look over your shoulders at your neighbor-- which I'm not sure whether it's capitalist or what you'd describe it, certainly not democratic-- has a far lower percentage of malnourished children. What should India be doing about this, if it maintains this form of capitalism that it has now?
AMARTYA SEN: Well, you know, since I've been writing about this for 40 years, and without much success, the first thing that India has to do is to recognize this to be a big problem. And for that, you need advocacy as much as analysis. And I'm a great believer in the combination of the two.
And to some extent, the problem of neglect of women, which is really big in India, is more appreciated now than it was even 10 years ago. When I started in the early '60s-- so how many-- a long time ago. 40, 45 years ago, when I first started teaching at Delhi School of Economics, I remembered my interest in gender was treated as an amiable eccentricity. People were very indulgent of my interest in that.
But the leftists told me that class was the only thing that mattered. And the rightists told you that inequality is not the right thing to worry about. Once the country progresses, everyone is going to be fine.
But it so happened that the feminist movement and advocacy, which is quite strong in India, has had the effect of getting that recognized. This hasn't yet happened with the child thing as much. And in the trusts that I set up with my Nobel money-- one in Bangladesh, one in India-- it's called Pratichi Trust. We have annual meetings. The last meeting we had particularly on this subject matter.
I don't have that much time. And Kaushik is going to cut me off if I go on too long. But let me say that there is a linkage between these two.
Undernourishment of children has many issues. It partly connects with the distribution of income, too. Along with undernourished children, there are a lot of fat children, too.
So there is a question of class bias, as well. There's no question that exists. But there is a connection with gender bias. Because a lot of the undernourishment of the children begins as low-weight babies.
India has a frequency-- one of the highest frequencies in the world-- the rest of South Asia is very much like India. So you can say South Asia. But let's say India, since the question you asked is about India, and that's where the debate is at the moment on this subject.
As far as India is concerned, it has one of the highest rates of maternal undernourishment, one of the highest rates of low-birth babies, and one of the highest rates of child undernourishment beyond the neonatal period as well And here's an interesting contrast-- the highest rate of cardiac problems, controlling for all the standard factors. And there is a connection. I'll come to that later. The last I'll come to last.
So the earlier bit is the mother's undernourishment. And that's connected with gender inequality and the conventions in society of whose interests are not recognized as being serious. It's the kind of sacrificial role-- usually, like all sacrifices, hugely eulogized, hugely praised. Instead of getting adequate food, you get a tremendous amount of praise.
There's an Bengali proverb saying that you cannot wash it and eat it. And that applies to praise very much. And unfortunately it has that effect of producing underweight babies. And that has a profound effect on making them more vulnerable and continuing that.
Now the bad effect-- and in some ways, the ray of hope also-- is the last bit, the cardiac connection. This actually originally emerged in a study in Southampton by David-- I'm trying to think of his name. David-- it begins with B. Barker. David Barker.
It was a study that he had on Southampton in Britain on the relation of birth weight and cardiac fitness. So over a long period-- 70, 80 years-- these children become older and get in to the cardiac period. And he found a high correlation of low birth weight babies and high cardiac pain.
Partly because-- one of them is that the arteries don't develop so much in the womb. So that your always more vulnerable. I was told by a British doctor that when they're operating on many South Asians, they are told to watch out for the fact that the arteries might be smaller sized.
So there is a connection. There are other things. They are also much more prone to diabetes. They don't know the connection. And there was a fair amount of discussion in The Lancet and British medical journals.
And of course, one of the odd things is that the cardiac things affect men much more than women. Now I have to say that as a nonbeliever, I'm always very happy when there is some evidence of the existence of god. But the penalty of treating women badly, hitting men, and having much harder cardiac risk, seems to be as close to an evidence that I can trust and like as I have encountered.
And so you have to link it up with the deprivation of other kinds in India, particularly the gender deprivation. But thanks for asking that question.
KAUSHIK BASU: You know, I was saying I'll allow one more question. But I don't think there is time. And since I didn't tell which of the nine hands I was going to pick on, no one need feel individually bad. At this point, let me call upon our president, David Skorton--
DAVID SKORTON: At various times in my life I have read your work. I've never had the honor to meet you. Before I went to India the first time, I read some of what you had written over those years. And more recently, less expertly, read some of your work in economics.
But when I was listening to your discussion, I couldn't help thinking about higher education, because of where we are today. When you were talking about-- I'm a physician. When you were talking about asymmetry of information, it reminds me of some of the markets in higher education.
And when you talked about how the markets cannot always be assumed to do the right thing, and implied but didn't say about haves and have-nots, we also have that in the world of higher education. And I just have to take one minute of the time to ask whether you think a market system as we currently use it, a market system which I view as quite individual-- a department, or even an individual faculty, can produce a market of her or his own for students for research and so on. Should we impose some sort of an external view on the higher education, rather than leave it in somewhat of a market-based situation which doesn't always turn out to the common good?
AMARTYA SEN: This has to be another lecture, which would give me another reason to come back here. And I would be very grateful if you managed to make slightly larger planes land here. It will make the transition much easier.
But I think it's a very exciting question you're asking. Of course the market-- I'll say two things. First of all, the market is not-- at least in private health insurance, there is a kind of-- doctors you pay, and insurance you pay, et cetera. But the education system is quite remote from that in many ways. Because you don't pay, basically, connected with that. Because all of them are subsidized in one way or another.
So that I don't think there's ever a reliance on the market economy. So in some ways, what we are gunning at is not so much reliance on the market only, but also whether we are using the power that we happen to have intelligently. And there is a multilateralism issue, too. Because there are different universities having their own policies. And how could we coordinate?
So I would look definitely to a great extent in that direction. When I was in India, I was quite involved in some of the issues of planning of higher education in the '70s and '60s in particular. But I think in India much more than here, it required a much greater integration of the system. Even though they were run by the government, they didn't have that feature of integration.
But the second thing is that the contrast is not so much the market as opposed to the external view. Because it is also an internal view, assessing, without the market, as to how it is going. I'm sure at Cornell you have, since you are leading it, you have much greater democracy on that.
But there is a question of [INAUDIBLE]. And it comes up at Harvard often, as well as other institutions now. Because all of them are reeling under the economic downfall. It's whether the decisions are being adequately democratically discussed or, in fact, they are not.
So there's a big problem there. I don't want to give a second plug for my book. But the main hero of my book is public discussion-- on my book The Idea of Justice is an understanding of justice, complete understanding of the demands of justice are really basically impossible without public discussion in an open way.
And I think it applies to education in an enormous way. And that's really what we're looking at there, rather than market or non-market. We have to go certainly beyond market. But also, a more discursive, more dialogic system than we currently have, I fear, even in the United States. Thank you.
DAVID SKORTON: Well, we, as many other schools, are suffering some strains right now. And we could do no better than to learn from you the importance of making information more symmetrical and having a more discursive conversation. So thank you. Now I'll return to my dry, prepared remarks.
Anyway, we're very, very pleased that you could come here. And I want to make-- since you have very gently plugged your own work, I want to put a small plug in for a work of Kaushik and Ravi Kanbur.
AMARTYA SEN: Yeah. I could have done that.
DAVID SKORTON: I'm going to do it on your behalf.
AMARTYA SEN: Will you do that? Yeah.
DAVID SKORTON: So they edited a new book, a very new book, called Arguments for a Better World: Essays in Honor of Amartya Sen. It was recently published by Oxford University Press. Everyone should rush out of here and get it as soon as possible.
[APPLAUSE]
You mentioned your earlier work here as an A. D. White Professor-at-Large. I wanted to just remind the audience that those were halcyon years for us, from 1978 to 1984. And we would like to work it out so that you can come back whenever you like and be a special professor.
I want to take the occasion, again, to thank the Hawkins and to thank George and the Stallers for inspiring it and making it possible, as was said. And it would be hard to imagine a more auspicious beginning to what I'm convinced will become a fixture and an institution on our campus. And I want to take the occasion, again, on behalf of all of the people here, and the 30,000 people behind them, to thank you for gracing Cornell yet again with your presence. And thanks everyone for making this possible.
[APPLAUSE]

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Amartya Sen, noted economist, philosopher and public intellectual, delivered the first annual George Staller lecture on April 13, 2009 in the Call Auditorium at Cornell's Kennedy Hall.

Sen, a former Cornell A.D. White Professor-at-Large (1978-84), is the Lamont University Professor and professor of economics and philosophy at Harvard University. Sen was awarded the 1998 Nobel Prize in Economics for his contributions to welfare economics. During his expansive academic career, Sen's research has spanned a number of fields, including development economics, social choice theory, public health, gender studies, moral and political philosophy, and the economics of peace and war.

The George Staller lecture series, established by the Department of Economics, honors Cornell Ph.D. and professor emeritus George Staller, a renowned teacher and scholar of Eastern European and Soviet economies.